TCI upgrades lag behind cable leaders

With the deal-making done, AT&T now is turning to the difficult task of upgrading its new cable TV network to handle telephone and high-speed Internet service.

The company has a long way to go. The futuristic bundle of communications services promised by AT&T requires a modern cable network, and the infrastructure acquired from Tele-Communications Incorporated is widely viewed as among the most antiquated in the industry.

In information accompanying a federal securities filing today, the company said that just 26 percent of its cable infrastructure had been upgraded to support two-way transmissions--a prerequisite for cable telephony and high-speed cable Net access.

That's well behind other cable TV leaders like Time Warner or Cox Communications, which have spent the last several years investing heavily in order to provide telephone and Internet capabilities.

But TCI's numbers are no surprise, analysts say. The company had projected it would reach the 26 percent figure by the end of 1998, and managed to meet these predictions head-on.

And despite trailing most of its biggest competitors, the company has upgraded its infrastructure quickly over the past year. TCI had only 3 percent of its cable systems upgraded to two-way cable at the end of 1997, according to Bruce Leichtman, director of media and entertainment strategies for market research firm The Yankee Group.

Starting slow
TCI, whose merger with AT&T was finalized last week, says it started upgrading its infrastructure later than did many of its competitors.

"There was kind of a hiatus on cable infrastructure upgrades which put us behind a little bit," said Katina Vlahadamis, a spokeswoman for the former TCI.

"In the early 90s we had some issues with management," Vlahadamis said, noting that the company did not do any significant cable infrastructure upgrades between 1994 and 1995.

"But since then we've had this strategy of rebuilding the company and we started aggressively upgrading to two-way," she said.

The company's investments have put it on track to surpass the industry average by next year, if its upgrade schedule stays on track.

The company estimates that by the end of 1999, 51 percent of its systems will be two-way ready, climbing to between 85 and 90 percent by the end of 2000.

That compares favorably to Yankee Group projections, which forecast that 41 percent of all industry systems will be upgraded to two-way capability by the end of 1999, and 54 percent by the end of 2000.

AT&T dollars speed the pace
That pace calls for significant outlays of cash from AT&T, which is making an expensive bet on the future of cable telephony.

According to the company's financial documents, close to $5 billion will be invested over the next two years in upgrading TCI's network to handle two-way traffic.

The majority of that expenditure will come in 2000, an AT&T spokesman said.
The company will focus on the 10 cities in which it is starting cable telephony trials this year, while upgrading some of the infrastructure in other cities. Mass market rollout will not come until 2000, the company has said.

Once the network itself can handle the promised packages of digital services, AT&T also has to support the rollout of equipment at customers' homes that will support cable telephones. This will add another $300 to $500 per household to AT&T's startup costs--although this sum will likely find its way incrementally into the customers' telephone bills.

Meanwhile, TCI also has been concentrating on upgrading its network to handle digital cable programming. This service is popular with users, and is initially more profitable than cable Net access, but is only marginally tied to AT&T's goals of producing bundled TV, telephony, and Internet service packages.

The investment in this area, which still is critical if AT&T is to maintain quality cable programming, will continue to compete for resources that could help speed the rollout of high-speed Net and cable telephony capability.

"They've still got a ways to go," Yankee's Leichtman said. "This takes time and consumers won't see these services overnight."